RETAILERS SCRAMBLE FOR EXCLUSIVE MUSIC RIGHTS

Wal-Mart's Garth Brooks Deal Raises Interest and Hackles

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COLUMBUS, Ohio (AdAge.com) -- Look what Starbucks started.

A year after the coffee company helped the Ray Charles album Genius Loves Company go platinum and eventually win a Grammy, everyone from retailers to restaurant chains are seriously eyeing the business of exclusively aligning themselves with music acts and artists.

In a deal that has the potential to dramatically alter the distribution of music products, Wal-Mart has bought the exclusive rights to sell all Garth Brooks' albums.

But when Wal-Mart, the world’s largest retailer, announced it would serve as the exclusive seller of country singer Garth Brooks’ albums, everyone started listening.

For a merchandiser, an alignment with an artist might be too good to pass up.

Existing fan base
Beyond just upping a company’s cool factor among consumers, an exclusive deal with a popular artist could land them an existing fan base of loyal customers who would be forced to shop at a specific retailer, potentially boosting sales in non-music merchandise as a result. The exclusive release of a long-awaited album could have a buzz-creating impact, not only in making a select group of people feel cool, but the transfer of that buzz onto the medium, be it a bricks-and-mortar or online store.

Hoping to replicate the success of Genius Loves Company, Starbucks started selling a newly restored album of Bob Dylan recordings in August, at 4,500 Starbucks stores nationwide for 18 months. Earlier, the company pushed an exclusive acoustic version of Alanis Morissette’s Jagged Little Pill. This spring, Target Corp. pushed an exclusive CD from Rob Thomas. Restaurant chain Cracker Barrel Old Country Stores has an exclusive distribution deal to sell Alison Krauss and Union Station’s Home on the Highways CD through its in-house gift shops. Last year, two months before U2 released its first studio album in four years, only one single, Vertigo, was available and only through iTunes. Coldplay repeated the success this year, releasing its album X&Y exclusively on iTunes with two extra songs for download.

Will fans feel manipulated?
However, industry observers say striking exclusive deals might not be right for everyone. Artists may be willing to sell out, but fans may end up feeling manipulated by marketing ploys, which may not end up serving the artist in the long run.

Besides railing against these deals as anti-competitive and contributing to rising CD prices, Kenneth DeGraff, a policy analyst at Consumers Union, decries the deals as limiting to artists and an insult to fans. (Mr. DeGraff even labels it the Starbucks tax on music.)

“It’s like saying your music is only applicable to a Starbucks or a Best Buy customer,” he added. “In the long run, as an artist, do you want your CDs available to as many people as possible, or only the U.S. population that is latte drinkers? These artists are also admitting their music has hit its peak and their music is not relevant anymore.”

So far artists aren’t complaining.

High sales in Starbucks
For Genius Loves Company, roughly about a quarter of the 3 million copies of the album were sold at Starbucks stores. Antigone Rising, the first debut artist to release an album under the Hear Music relationship, sold 21,000 CDs in its first two weeks, more than the group’s prior album sold in total. And during several weeks, nearly half of the sales of an exclusive “limited time edition” of Michael Buble’s album It’s Time were made at the stores.

The timing comes as decades of diminishing sales and profits eroded by bootlegging and illegal downloading have left record companies and artists desperate for new sources of revenue and distribution outlets. Offering up the cachet and equity of an established artist to retailers to improve their own brand connections with consumers is now viewed as a cash-cow strategy. In return, artists not only get to sell more albums, but they get the opportunity to push everything from clothing lines to perfume, which can represent a new source of revenue, as well.

Artists control own distribution
“It used to be artists were artists first and moneymakers second,” said Lucian James, president of marketing consultancy Agenda Inc. “Hip-hop created a system where an artist was in control of their own distribution showing artists a new way to own a career.”

For big-box retailers, many struggling to distinguish themselves in a fragmented media landscape and a competitive environment marked by parity in both price and experience, being able to offer a CD release exclusively is viewed as a way to better define the retail brand to its audience.

For example, Wal-Mart has never been shy about associating itself with the music darlings of its target audience. At the company’s raucous annual meeting this June, Mr. Brooks, Jon Bon Jovi and Jessica Simpson all performed. Wal-Mart’s relationship with Mr. Brooks gives Wal-Mart exclusive distribution rights to all the country music stars’ entire catalog of music. Terms of the deal were not disclosed nor the length of the distribution of the singer’s albums. But Mr. Brooks has sold 105 million albums in the U.S., according to the Recording Industry Association of America.

The Starbucks twist is in thinking outside of the coffee category and not just seeing its 8,700 locations logistically as coffee distribution points. Analysts say the Starbucks music model is akin to McDonald's rise in the early '90s as one of the biggest merchandiser of toys, such as Beanie Babies.

Starbucks' absolute 'mainstreamness'
“Starbucks understands its own audience and the power of its distribution network,” Mr. James said. “You can almost feel the weight of the research in the music that it is the perfect CD for the perfect audience. There’s a kind of absolute ‘mainstreamness’ to what Starbucks is doing.”

But could exclusives with retailers soon lead to bidding wars between Wal-Mart and Target for the distribution rights of the next big boy-band sensation?

Hardly, say industry insiders.

“That’s not in anyone’s best interest,” said Clark Benson, CEO and founder of Almighty Institute of Music Retail, which maintains a database of every record store in America, a database subscribed to by 130 record labels. “Artists will still want their music to be available to the public. After all, in Los Angeles there isn’t a Wal-Mart and that’s one of the country’s biggest markets.”

But Mr. Benson added that he considers the Garth Brooks deal with Wal-Mart an aberration and not a model.

'Could piss off other retailers'
“You won’t find other situations like Garth Brooks, where a huge, or once huge artist makes an entire catalog exclusive to a retailer,” he said. “This happened because the Wal-Mart audience is so closely aligned with Brooks’ fan base. Exclusives will grow, but not outrageously. This is something that could really piss off other retailers. Retailers like there to be a level playing field.”

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